I.Beta Company sells blouses in Washington, USA. Blouses are imported from Canada and are sold to customers in Washington at a profit.Salespersons are paid a basic salary plus a commission on sales made by them. Sales and expense data is given below:

Selling price per blouse$80.00

Variable expenses per blouse:

Invoice cost$36.00

Sales commission$14.00

Total VC$50.00

Annual fixed costs:

Rent$160,000

Marketing$300,000

Salaries$140,000

Total FC$600,000

Required:

1. Compute the number of units to be sold to break-even.

2. If the manager is paid a commission of $6 per blouse (in addition to the salespersons commission), what will be the effect on the company's break-even point in units?

3.As an alternative to (2) above, the company is thinking about paying $6 commission to the manager on each blouse sold in excess of the break-even point. What will be the effect of these changes (in dollars) on the net operating income or loss of the Beta Company if 23,500 blouses are sold in a year? Show the net operating income/loss without the $6 commission and the net operating income/loss with the $6 commission.

4. Refer to the original data. What will be the break-even point, in dollars and units, for the company if the commission is entirely eliminated and salaries are increased by $214,000? Should the company make this change?

II.

1.The following is the contribution margin income statement of a single product company:

TotalPer Unit

Sales$1,200,000$80

Less Variable Expenses($840,000)($56)

Contribution Margin$360,000$24

Less Fixed Expense($300,000)

Net Operating Income$60,000

Required:

1. Calculate the break-even point in units and dollars.

2. What is the contribution margin in dollars at the break-even point?

3. Compute the number of units to be sold to earn a profit of $36,000.

4. Compute the margin of safety using the original data.

5. Compute the CM ratio. Compute the expected increase in monthly net operating income if sales increase by $160,000 and fixed expenses do not change.